Reifman, Accounting Solutions & Tax

Time Travel and Receipts

The standard model of small business accounting is that you run the business based on vibes for eleven months, and then in the twelfth month, you pay someone to tell you if you actually made any money.

This is a very human approach. If you are running a business, your primary concern is making a product or selling a service or convincing people to give you money. Your primary concern is not categorizing an Amazon purchase from March 14th as “Office Supplies” or “Cost of Goods Sold.” In the moment, the purchase feels like a business necessity; by December, it feels like a mystery.

There is a theory of accounting that says it is a continuous process of measuring economic reality. But there is a practiceof accounting that says it is a forensic reconstruction of a crime scene that you personally committed.

The problem with the “Forensic Crime Scene” model—the model where you hire an accountant only in December to “catch up” on the whole year—is that it assumes two things:

1. That the past is perfectly preservable.
2. That you, the business owner, have a memory.

You do not. If I ask you today what that $432.50 charge to “Intl Svc Pay” on February 3rd was, you might, if you are very organized, check your email. If I ask you in December, you will look at me with blank terror and say “Software?” And then I will put it in “Software,” and then the IRS will audit you, and it will turn out to be a payment for a customized bobblehead of yourself, which is technically not software.

The Option Value of Knowing You Are Broke

The main reason to hire a bookkeeper for the full year, rather than just for the December panic, is not actually about compliance. It is about the option value of knowing you are losing money while there is still time to stop doing it.

If you do your bookkeeping in December, you are looking at a history book. If the history book says “In May, you spent more on Facebook ads than you made in revenue,” that is an interesting historical fact. It is a tragedy. But it is over. You cannot un-spend the ad money. The cash is gone.

If you do your bookkeeping in May, and the report says “You are spending more on ads than you are making,” you can stop. You can change strategy. You can fire the ad agency.

There is a strange psychological phenomenon where business owners believe that if they don’t look at the bank account, the balance is Schrödinger’s Cash—it is both sufficient and insufficient until observed. But the bank account is not quantum. The overdraft fees are very deterministic.

The Hazmat Premium

There is also the issue of price.

If you hire a cleaner to come to your house once a week to dust and vacuum, it costs a certain amount of money. It is a maintenance fee.

If you never clean your house for a year, and then you hire a cleaner on December 20th and say “I need this place spotless for a dinner party tomorrow,” you are not hiring a cleaner. You are hiring a hazmat remediation team. You are asking them to scrape a year’s worth of grime off the floorboards in 24 hours.

The hazmat team charges a premium. They charge a premium because the work is disgusting, but also because they know you are desperate.

Accounting works the same way.

• Monthly bookkeeping: A gentle, rhythmic process of sorting transactions while the context is fresh.
• December catch-up: A violent, high-stress excavation of thousands of transactions, performed against a hard deadline, usually requiring the accountant to work nights and weekends while you sit by the phone answering questions about why you bought so much Starbucks in July.

You pay for the monthly bookkeeping because it is cheaper than the hazmat remediation. But mostly, you pay for it because it turns accounting from “a terrifying annual judgment day” into “a monthly report that tells you if you can afford to buy a truck.”

(Note: You usually cannot afford the truck. If you have a monthly accountant, they will tell you this before you sign the lease. If you have a December accountant, they will tell you this after you have already driven the truck for six months, and then they will explain why you can’t deduct the whole thing in year one. This is much more annoying.)

The Pitch

So, look. You can wait until December. Many people do. It is a time-honored tradition of repression and denial.

But if you would like to treat your business as a machine for generating profit, rather than a mystery box that spits out a tax bill once a year, you should probably just hire us now. We will categorize the receipts while they are still warm. We will tell you if you are making money. And in December, instead of panicking, you can just go to a holiday party.